Posts

The Economics of the Not-Obvious

Before picking stocks, you need to pick industries, which means studying current economic trends - changing customer preferences, politics, geography, climate change, etc. Which industries will thrive in the next five years, and which will flounder? This is already obvious to some, but many fail to take it to the next step: Which of these economic trends are not obvious to most investors ? For example, let's take political momentum towards fighting climate change, which has led stocks related to solar energy and wind energy to soar. Taking the Hipster Investor philosophy, it's no longer a good time to invest in wind and solar, as these stocks are all likely overvalued by now.  So how can we take advantage of this trend while avoiding the obvious? For one, wind and solar are highly inconsistent in their energy generation, and so need backup power plants that can startup quickly and be shut down quickly. The only type of plant that fits the bill is natural gas, which is why I now...
Post a Comment
Read more

Setting Trail Stops Based on Analyst Opinion

When a stock I own is nearing or exceeding the target price set by analysts, or otherwise has been downgraded by analysts, I set a trail stop, or a series of trail stops, so that I  exit or reduce the position when the price declines.
Post a Comment
Read more

Avoid Popular Stocks

I normally avoid stocks that the "herd" of retail traders tend to flock to. Yes, it means I miss out on huge rallies, but it also means I avoid huge crashes or volatility. If I do hold popular stocks, I put a trail stop so I don't lose too much when it crashes. I make sure the trail stop is wide enough to accommodate the stock's day-to-day volatility. Since most Philippine trading platforms don't have a trailing stop feature, all the more you should avoid popular stocks.
Post a Comment
Read more

When Exiting a Position, Prefer Trailing Stops

Sometimes I read or hear negative news or an opinion about a particular stock that makes me decide to exit my position, hoping to do so before the general market gets the same sentiment and sends the stock price crashing. Now, I've made the mistake of using a limit order, and find that the price I set was too low, because the stock price continues to rise, often significantly. I regret all the opportunity loss.  Unless the stock is crashing before your eyes, it's better to use a trailing stop . That way if the stock price continues to rise, you can still take advantage of the rise. Depending on how much at risk I think the price is of crashing, I usually set the trail stop between 0.5% to 2%; 0.5% if I think the stock can crash immediately, 2% if I think it still has a few days or weeks to rise. If it's a large position, I'll set multiple trail stops at different percentages. Of course, if it's crashing before your eyes or the news you heard/read is very serious, us...
Post a Comment
Read more